Politics takes leading role in economic data analysis

Maybe it is inevitable that politics play a role in economic policy. After all, the two disciplines were pretty much intertwined until the 20th century. Today, political economy has taken on a whole new meaning. Perhaps “politicised economy” would be a more accurate description. Some of the politicisation is natural and understandable: political philosophies dictate economic preferences and vice versa. Much of it is over the top.

Here are the categories I’ve assigned to reflect the four degrees of politicisation:

l I Think, Therefore I Am

It’s natural for a president to appoint advisers who share his views on the government’s role in the economy.

Once an economist becomes a top presidential economic adviser, she becomes a political tool, sacrificing both her objectivity and credibility. Berkeley economist Christina Romer, US President Barack Obama’s first chairman of the Council of Economic Advisers, may be a respected researcher, but to me she will always be Ms “Jobs Created or Saved”. Romer was trotted out quarterly to justify the cost of the administration’s 2009 fiscal stimulus, estimated at $825 billion (R6 trillion). Talk about pulling numbers out of a hat.

l Sour Grapes

If the foregoing reflects the inadvertent politicisation of economics, what follows is intentional, pure and simple.

Last Friday, the Bureau of Labor Statistics reported a 243 000 increase in January non-farm jobs (257 000 in the private sector) and a decline in the unemployment rate to a three-year low of 8.3 percent.

Republicans, hoping to run in November against Obama’s lousy economic record, would prefer a rising jobless rate to a declining one, which historically has been a good credential for re-election.

“Anaemic growth is not growth,” said former House speaker and Republican presidential hopeful Newt Gingrich, responding to the report. Critiquing the stimulus and other administration initiatives is a legitimate line of enquiry. Even better is outlining your plan to make things better. Denying good news – in this case, a gradually improving economic trend – makes Gingrich come across like, um, a space cadet.

l Yes, But…

House Speaker John Boehner said he saw “flickers of hope” in Friday’s jobs report and welcomed the positive news, but “we can do better”. The jobless rate had been stuck above 8 percent for 36 consecutive months, he said, before reminding the American people of Obama’s promise to cap unemployment at that level if Congress passed his stimulus bill. (Actually, it was Romer’s econometric model that made that promise.)

Boehner did go positive, in a negative sort of way, saying he hoped the news would inspire the Senate to take up the 27 jobs bills sitting in that chamber.

l Oh, What a Tangled Web We Weave

At the far end of the politicisation spectrum are those who believe the government cooks up the numbers in some dark corner of the Labor Department basement. It’s as if these folks decreed: “There shalt be no good news as long as Obama is president, the federal government is expanding and the Federal Reserve is printing money and debasing the dollar.”

I have a message for them. It’s not the data that are politicised. It’s the interpretation. Friday’s report inspired an outpouring of accusations of “fraudulent employment statistics” and long screeds on updated population estimates from bloggers (ZeroHedge and the Economic Collapse) and editorial writers (the Washington Times) alike.

The household survey for January incorporated new information from Census 2010. Previous months were unrevised. Simply put, there is a December/January break in all the series that rely on the new estimates.

Conspiracy theorists seized on the 1.2 million increase in those “not in the labour force”. Adjusted for an apples-to-apples comparison, the number fell by 75 000 in January. That’s because the population increase was concentrated in persons 55 and over and in the 16-24-year-old age bracket: a population less likely to be in the labour force than the general population.

None of this is to deny the depressed state of the labour market. But before you accuse me of naivete and Bureau of Labor Statistics statisticians, who are not political appointees, of fraud, ask yourself one question. If the government were fabricating the numbers, why settle for an 8.3 percent unemployment rate when 6.2 percent would better serve its agenda?

Caroline Baum, the author of Just What I Said, is a Bloomberg View columnist.

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